Payback Period Calculator
How long an investment takes to pay for itself, both undiscounted and discounted. The two differ by more than people expect, and the discounted figure is the honest one because a rupee arriving in year six is not a rupee today.
Also called: payback period, investment payback calculator.
3.57 years to recover 2,500,000, or 4.65 years once the cash is discounted at 10%. Discounting adds 1.08 years, because the later years doing the recovering are the ones discounted hardest. At 10% a rupee in year five is worth 62 paise today. Payback stops counting at the payback date and ignores the 4.4 years of cash after it, which is usually where the value sits. The net present value of 1234448.34 counts all of it and is the number that should decide.
An estimate, not an offer or a guarantee. Projected returns assume the rate you entered holds for the whole term, which no market does.
Cumulative cash position
Hover or drag for valuesRecovery year by year
| Year | Cash in | Cumulative position | Discounted | Discounted position |
|---|---|---|---|---|
| Year 1 | $700,000 | -$1,800,000 | $636,364 | -$1,863,636 |
| Year 2 | $700,000 | -$1,100,000 | $578,512 | -$1,285,124 |
| Year 3 | $700,000 | -$400,000 | $525,920 | -$759,204 |
| Year 4 | $700,000 | $300,000 | $478,109 | -$281,094 |
| Year 5 | $700,000 | $1,000,000 | $434,645 | $153,551 |
| Year 6 | $700,000 | $1,700,000 | $395,132 | $548,682 |
How this is calculated
Simple payback accumulates the inflows until they cover the outlay. It is popular because it is easy and because it speaks to a real concern, how long capital is at risk, but it treats distant cash as equal to immediate cash and so always flatters. Discounting each year first gives the discounted payback, which at a ten percent rate typically runs a year or more longer. Both measures share a deeper flaw: they stop counting at the payback date and ignore everything after it. A project paying back in three years and then stopping is worse than one paying back in four and running for ten, which is why the net present value is shown alongside and should be the deciding number.
the simple form, which treats a rupee in year six as equal to one today and therefore always flatters the project- I
- Initial investment
- C
- Annual cash inflow
Method and limits
What it assumes
- Cash flows arriving at the end of each year, which is the standard convention.
What it deliberately does not model
- Payback ignores every cash flow after the payback date, which is where most of the value usually sits.
- It is a liquidity measure rather than a profitability one and should not decide between projects on its own.
Formula version 1.0.0 · definition 1.0.0 · United States · Report a problem with this calculator
Frequently asked questions
- Should I choose the project with the shorter payback?
- Not on that basis alone. Payback ignores everything after the payback date, so a project that recovers quickly and then stops can be worth far less than a slower one that keeps earning. Compare net present value.
- Why is the discounted payback so much longer?
- Because the later years, which are the ones doing the recovering, are discounted hardest. At ten percent, cash in year five is worth about sixty-two percent of its face value.